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Tuesday, June 22, 2004

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Kaushik Das: The right to property
It is high time the government makes it a fundamental right again Advanced
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Kaushik Das / New Delhi April 14,2004
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Columnists Peruvian economist Hernando de Soto is the recipient of this year’s
prestigious Milton Friedman Prize for Advancing Liberty, which carries a
Compass cash award of $ 500,000. The first winner of this biannual prize — started in
2002 by the Cato Institute — was the late London School of Economics
economist Lord Peter Bauer. de Soto has been awarded this prize for his
ground-breaking work on property rights. Sensex

According to de Soto, the people of less-developed countries seem to be Nifty

poorer than they actually are because their wealth is often not formally Rs-$
recognised. As he has pointed out in his 1986 book The Other Path, “They
have houses but not titles; crops but not deeds; businesses but not statutes Nikkei
of incorporation....”
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Take India, for example. The Indian Constitution does not recognise Last Upd
property right as a fundamental right. In the year 1977, the 44th amendment 22-June
eliminated the right to “acquire, hold and dispose of property” as a IST
fundamental right. However, in another part of the Constitution, Article 300
(A) was inserted to affirm that “no person shall be deprived of his property
save by authority of law”. The result is that the right to property as a
fundamental right is now substituted as a statutory right. The amendment
expanded the power of the state to appropriate property for “social welfare
purposes”.

In other words, the amendment bestowed upon the Indian socialist state a
Will the budget be pro- licence to indulge in what Fredric Bastiat termed “legal plunder”. This is one
reform? ? of the classic examples when the “law has been perverted in order to make
plunder look just and sacred to many consciences”.

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n Yes Before we go into the technicalities of property rights, it is worth
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investigating how property rights evolved in the history of economic thought.
j
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n It was John Locke, who first shocked the ruling class of his era by
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n It will be a bit of both proclaiming in his masterpiece Two Treatises of Government (1690) that
property rights existed prior to the government. So property right is not a ------Sele
creation of the government, but instead, the source of the government. In
his own words, “Government has no other end but the preservation of
property.”
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The other two great stalwarts to emphasise the role of liberty and property
were David Hume and Adam Smith. They contended that formal property Partner w
rights backed by a just and effective legal system, coupled with guaranteed
liberty, were sufficient to set the wealth of nations on a course of almost Jobs@BS
eternal growth.
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Now, what exactly are property rights? Why are they so important? Let us
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proceed to investigate these questions in a step-by-step method.

Property rights are defined as a bundle of entitlements defining the owner’s

rights, privileges and limitations for use of a resource. For a country that has
eschewed the capitalist form of society for more than half a century,
property rights make little sense for the elite socialist planners, simply
because almost all the factors of production were concentrated in the hands
of the state until just the recent decade. Private property in India has been
looked upon with the utmost disdain and has been considered the root
cause of disharmony among fellow citizens. But for countries that have
astutely embraced capitalism, property rights form one of the three most
important pillars for running the system successfully, the other two being
free trade and liberty.

If we observe carefully, we will find that the numerous disputes we

encounter relating to resources arise from the fact that no one owns them or
perhaps because everyone owns them, as in the case of public property. It
is not difficult to see that people care for their own property much more than
they care for the public property. Many of the environmental problems we
face today, ranging from pollution, the depletion of rainwater forest or animal
species becoming extinct, are largely due to the absence of formal property
rights.

One of the greatest problems that is staring in our face today in India is the
scarcity of private investment in real estate for poor people. Real estate
prices have been artificially hiked due to the effects of draconian laws such
as rent control. This infringement of property rights has led to the
emergence of numerous slums, run by slumlords.

However, these disputes could be resolved if the unclaimed resources were

divided up as private property. Then if someone wanted to use your
property, you could charge them a fee. Or if they exploited your property,
you could sue them in court. Assigning property rights greatly enhances the
ability to resolve disputes over the use and abuse of resources.

A recent spate of studies, pioneered by William Easterly of the Centre for

Global Development and Ross Levine of the University of Minnesota, points
out that sound institutions such as political stability, property rights, legal
systems and patterns of land tenure are more important for development
than the geography of the country or economic policy.

The recognition of de Soto’s work on property rights could not have come at
a better moment. The timing coincides perfectly with China’s decision to
incorporate property rights in its constitution. These two landmark
accomplishments elucidate the immense efficacy of sound institutions such
as property rights to the rest of the less developed countries. Indian
politicians and legislators should take lesson from these two unprecedented
achievements and waste no more time in incorporating property rights as a
part of the Indian Constitution if they really want India to be counted as one
the developed countries of the world. If a communist country like China is
able to appreciate the importance of property rights, why should we Indians
lag behind?

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